Business, Legal & Accounting Glossary
The accounting definition of this term derives from the English definition for the term White Knight. Someone or something that rescues or saves another person or thing from a bad situation especially : a company that buys a second company in order to prevent it from being taken over by a third company.
A White Knight is a person or firm that makes a welcome takeover bid for a company on improved terms relative to an unacceptable/unwelcome bid from a black knight.
If a company is the target of a takeover bid from a source which is considers unattractive or undesirable, it will often seek out an offer from a White Knight (An entity which is deemed as a more suitable owner of the company).
A purchaser for a company, willing to rescue it from an unwanted takeover bid by another buyer.
A company threatened with takeover may welcome a competitive bid by a white knight as a means of improving the terms offered by the first bidder, whether or not the alternative bid is ultimately accepted.
A white knight is a friendly bidder who steps in to help a company that is having financial difficulties. The efforts of a white knight often occur during a takeover: the white knight makes a friendly bid to buy the struggling company in order to avoid the unwanted change in ownership. A white knight may do this voluntarily or may be asked to do this by a company’s management (this doesn’t mean that the white knight will pull out after the bidding is complete). A white knight may also try to save a struggling company by simply putting money into that company. If a company is doing poorly financially, no other entities might be interested in it. The white knight accepts a significant risk when acquiring an indebted or bankrupt company. After the acquisition, the white knight may try to rebuild the firm.
The accounting definition of this term derives from the English definition for the term White Knight.
Someone or something that rescues or saves another person or thing from a bad situation especially : a company that buys a second company in order to prevent it from being taken over by a third company.
In business, a white knight is a friendly investor that acquires a corporation at a fair consideration with the support from the corporation’s board of directors and management.
This may be during a period while it is facing a hostile acquisition from another potential acquirer (black knight) or it is facing bankruptcy.
White knights are preferred by the board of directors (when directors are acting in good faith with regards to the interest of the corporation and its shareholders) and/or management as in most cases as they do not replace the current board or management with a new board, whereas, in most cases, a black knight will seek to replace the current board of directors and/or management with its new board reflective of it’s net interest in the corporation’s equity.
The first type, the white knight, refers to the friendly acquirer of a target firm in a hostile takeover attempt by another firm.
The intent of the acquisition is to circumvent the takeover of the object of interest by a third, unfriendly entity, which is perceived to be less favourable.
The knight might defeat the undesirable entity by offering a higher and more enticing bid, or strike a favourable deal with the management of the object of acquisition.
The second type refers to the acquirer of a struggling firm that may not necessarily be under threat by a hostile firm.
The financial standing of the struggling firm could prevent any other entity being interested in an acquisition.
The firm may already have huge debts to pay to it’s creditors, or worse, may already be bankrupt. In such a case, the knight, under huge risk, acquires the firm in crisis.
After the acquisition, the knight then rebuilds or integrates the firm.
A number of variations of the term have been used and these include a grey knight which is an acquiring corporation or individual that enters a bid for a hostile takeover in addition to the target firm and first bidder, perceived as more favourable than the black knight(unfriendly bidder), but less favourable than the white knight (friendly bidder).
Also, a white squire, which is similar to a white knight except it only exercises a significant minority stake, as opposed to a majority stake.
A white squire doesn’t have the intention, but rather serves as a figurehead in defence of a hostile takeover. The white squire may often also get special voting rights for their equity stake.
A white knight is the favored suitor in an acquisition that arrives on the scene after a black knight has already made a hostile bid for a business.
If anyone has been set up to be the white knight in the Democratic Party fund-raising debacle, it is them.
I didn’t like the white knight because I thought he was trying his best to overcompensate and look cool to everyone.
John was being targeted as the white knight for the takeover. They needed someone who was well respected and liked to make sure the takeover was non-hostile.
When I worked for a large bank, we were being acquired by a rival until a white knight company came and squired us for a larger amount and kept us from being absorbed by a rival.
Lady Macbeth Strategy
Lock-up Option
Sandbag
Gray knight
Angel investor
Corporate raider
Takeover
A white knight is a friendly investor who comes to the rescue of a distressed business often in response to a hostile takeover offer.
Warren Buffett is perhaps the most famous practitioner of the white knight bid alive today. An example of one of his white knight style bids would be his recent bid on Constellation Energy. During the week of September 18th 2008, Constellation’s stock fell 39% in a single day followed by a 19% down day on concerns that they would not be able to raise capital. Buffett then swooped in with a bid that was ultimately accepted about a 10% premium.
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This glossary post was last updated: 13th April, 2022 | 0 Views.